How to start a business in Iowa

Here is everything you need to know about starting a business in Iowa, from licenses and permits to taxes and insurance.

Many future factors will depend on which type of business entity you choose. There are three main choices.

Sole proprietorship

A sole proprietorship is a business that is run by one person. You and your company are legally one and the same, with no separate legal entity for your business.

Partnership

A partnership is similar to a sole proprietorship in terms of legal status, but it consists of two or more people.

Corporation

A corporation is a complex legal organization that consists of directors, executives, and shareholders and is independent from the owner (giving legal protection to the owners).

Limited Liability Company

LLC also known as a "Limited Liability Company" is a hybrid entity that combines the advantages of a sole proprietorship and a corporation. An LLC offers the same liability protection as a corporation while avoiding double taxation because the profits are reported on your personal tax return.

LLCs are becoming popular among small business owners because they are simple to maintain and provide the advantages of a corporation without the complexity of a corporation's structure. They are more like a sole proprietorship in terms of taxation. You should speak with an attorney to determine which entity is ideal for your company.

Establish your business entity

Sole proprietorship

In Iowa, you don't need to file any organizational documents with the state to start a sole proprietorship.

General partnership

You don't need to file any organizational documents with the state of Iowa to form a general partnership. All partnerships should have a formal partnership agreement, even if it is not legally necessary. If there is ever a disagreement between the partners, the partnership agreement can be quite useful. You must file a Statement of Qualification with the Iowa SOS to form a limited liability partnership (typically utilized by professionals).

LLC

In order to form an LLC in Iowa, you must submit a Certificate of Organization to the Iowa Secretary of State. The Certificate can be submitted online. For service of process, you'll also need to appoint a registered agent in Iowa. Additionally, while it is not needed by law, you should draft an operating agreement to lay out the fundamentals of how your LLC will operate.

Partnership

You must file Articles of Incorporation with the Iowa Secretary of State to form a corporation in Iowa. Articles can be filed online. For service of process, you'll also need to appoint a registered agent in Iowa. You should also draft bylaws to outline your corporation's internal running regulations, even if it is not legally needed. The state does not require bylaws to be filed. Corporations must also submit IRS Form 2553, Small Business Corporation Election, with the Internal Revenue Service.

Tax registration for licenses and permits

You must register with the Iowa Department of Revenue (DOR) to collect sales tax if you plan to sell goods in the state. You must register with the DOR for employer withholding taxes if your business will have employees. Using Form 78-005, Iowa Business Tax Permit Registration, you can register for both forms of tax and other business taxes, either online or on paper.

EIN

You must acquire a federal Employer Identification Number (EIN) from the IRS if your business employs workers or is taxed separately from you. Even if you aren't legally compelled to have an EIN, there are many business reasons to do so. Banks frequently require an EIN to create a business account, and other organizations with whom you do business may also require an EIN to make payments. An EIN can be obtained by filling out an online application. There is no charge for filing.

Regulatory licenses and permits

These include topics such as:

Building and construction;

Health and safety;

The environment.

Check out IASourceLink's Business License Information Center for assistance in determining which regulatory licenses and permits may apply to your specific business (IASourceLink is part of the Iowa Economic Development Authority). Check the websites of any cities or counties where you plan to do business for information on local licenses and permissions.

Every type of business is taxed in Iowa. For additional information on state business taxes in Iowa, go to Iowa State Business Income Tax.

Obtain insurance

Purchasing insurance coverage to protect yourself in the event of property damage or legal action is a good idea regardless of the type of business you start. In fact, the federal government requires businesses with employees to obtain two forms of insurance, while others are strongly recommended or mandated at the state level, depending on the type of business. To determine which forms of insurance you should get, speak with a certified insurance representative.

Insurance coverage is required:

If an employee is injured or becomes ill on the job, workers' compensation pays for medical expenses and disability payments;

Unemployment insurance provides payments to workers who have lost their jobs due to no fault of their own.

Recommended forms of insurance

Property damage, medical expenses, slander, libel, and negligence claims are all covered by professional liability insurance. Commercial property insurance protects the assets and properties of a company in the event of a fire, storm, and theft. Disability insurance pays out short-term payments to employees who are sick or injured. California, New York, and Hawaii are among the states that require it.

Open a bank account for your business

Whatever type of business you start, you should register a separate business account to make tracking your income and expenses easier. A separate bank account is required for various business forms, such as LLCs and corporations, in order to preserve liability protection.